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Security for costs – be reasonable!

A recent Judgment in Hong Kong on a security for costs application reinforces the wide discretion of the Court as to the form and quantum of security which should be accepted

Security for costs applications are a fact of life for litigants in common law jurisdictions around the world, and Hong Kong is no exception. The logic is clear – the Plaintiff compels the Defendant to defend the claim, and incur costs in so doing. If the Plaintiff is a foreign company, the Defendant will usually be entitled to security for those costs, so that they will not be left out of pocket if the claim fails.

The Rules of the High Court at Order 23 rule 1(1) provide that the Court may, "having regard to all the circumstances of the case", order the Plaintiff to give such security for the Defendant's costs as it thinks just.

There is a temptation, however, for enterprising Defendants to use this process as a means of exerting pressure on the Plaintiff, for example by demanding a large amount of security regardless of the claim value, and demanding that the security be provided by way of cash paid into Court.

In that case, the principal claim was for about HKD740,000 but the Plaintiff conceded that its maximum recovery was limited to HKD260,000. The Defendant demanded security of HKD344,000 up to the discovery stage, and demanded that this be paid into Court.

The Plaintiff offered security for a lower amount, in the form of a Letter of Undertaking (LOU) from the Plaintiff's Solicitors, but this was rejected by the Defendant.

The Court refused to grant the security demanded. Instead, the Court ordered the Plaintiff to provide security of only HKD130,000, by way of a LOU (as offered by the Plaintiff) and awarded the Plaintiffs their costs of the application.

In addition, the Court helpfully restated the position that:

After the Civil Justice Reforms, the Court should actively manage cases to promote "a sense of reasonable proportion and procedural economy" in the conduct of proceedings

This principle extends to demands for security for costs

The quantum of security for costs demanded was "wholly excessive"

There is no limitation on the form of security which the Court may order

In conclusion, this concise Judgment is a useful reminder that security for costs demands must be proportionate, and that the Court will not permit the procedure to be used as a tool to dissuade Plaintiffs from bringing reasonable claims.